Obama’s Student Loan Relief Plan: How Helpful Would it Be?

President Obama outlined a plan to speed up help for millions of Americans struggling with the cost of higher education. Gwen Ifill discusses the president's effort to ease the burden of student loans with "Generation Debt" author Anya Kamenetz and Jeff Selingo of the Chronicle of Higher Education.

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GWEN IFILL:

President Obama turned today to the cost of college and the struggle to pay for it. He laid out a plan to speed up help for millions of American students. And he said it comes at a time when a college degree has never been more expensive or more important.

(CHEERING AND APPLAUSE)

PRESIDENT BARACK OBAMA:

Hello, Denver!

GWEN IFILL:

The White House chose to talk about student loan relief today to an audience feeling the pain, thousands of students at the University of Colorado, Denver.

BARACK OBAMA:

When a big chunk of every paycheck goes towards student loans, instead of being spent on other things, that's not just tough for middle-class families. It's painful for the economy, and it's harmful to our recovery.

GWEN IFILL:

Mandatory payments on student loans are already set to be scaled back in 2014, but the president's plan would accelerate that timeline to 2012.

That executive order will cap maximum student loan repayments at 10 percent of discretionary income, down from the current 15 percent — 1.6 million borrowers would qualify. Any remaining debt will be forgiven after 20 years, instead of 25.

The president also ordered that nearly six million people be allowed to consolidate federal student loans and reduce interest rates up to half-a-percent. He said the changes are critical for students facing pressures from a global economy.

BARACK OBAMA:

So we live in a time when over the next decade 60 percent of new jobs will require more than a high school diploma. And other countries are hustling to out-educate us today so they can out-compete us tomorrow.

GWEN IFILL:

It was the latest in a series of executive actions the president is taking to bypass the congressional roadblock that has stymied his larger jobs bill.

Soaring college costs have become a key concern. The College Board reported today that average in-state tuition and fees at four-year public colleges are up 8 percent this year. That makes the cost of a full course load, upward of $8,000, more expensive than ever — 36 million Americans owe on student loans, a burden which now surpasses credit card debt.

For more on the latest effort to address the problem of college debt, we turn to Jeff Selingo, vice president and editorial director of The Chronicle of Higher Education, and Anya Kamenetz, who has written widely on the subject, including the book "Generation Debt."

Jeff Selingo, we heard 36 million people are paying college debt. This plan that the president put forward today would affect 1.6 million. How much of a difference would it make?

JEFF SELINGO, The Chronicle of Higher Education: It's not going to make a huge difference.

Between both programs, it's probably going to impact maybe about seven million of those people in repayment or new students coming into the program. The thing about the income-based program that was announced today is that it's only going to affect students in college right now.

So all of these students, these recent college grads who have graduated with a lot of debt who are now looking for jobs and can't find them or are doing jobs that only require a high school diploma, it's not going to provide much help to them.

As Jeff mentioned, this program is already very under-subscribed. It's been around for two years — 1.6 million people may be eligible, but only 450,000 are actually enrolled. So, I think that the most important thing about the president's announcement is that more people are going to be aware that they have this option.

GWEN IFILL:

Well, let me ask you about that. If that few people who are currently eligible for the program as it stands have taken advantage of it, why? Why not? Why not more?

ANYA KAMENETZ:

I think it's been under-publicized. I think that there's a lot of red tape involved. People don't understand the process and the advantages of it.

And it's also important to point out that this doesn't apply to many types of student loans. So it's not going to apply to your parental PLUS loans, for example. It also doesn't apply to private student loans, which have been growing at a very fast pace, about three times faster than these federally subsidized student loans.

GWEN IFILL:

Go ahead.

JEFF SELINGO:

And it only applies to low-income borrowers at the end, or low-income graduates. So there are income caps on these.

It has been proposed that income-contingent loans should be extended to everybody, so you should always be able to pay back a portion of your student loans based on your income. And that's one of the ideas that have been floated in recent weeks, especially as student loans have become a big issue in the Occupy Wall Street movement.

GWEN IFILL:

It's also been floated at that movement in particular that people — that all of these loans should be forgiven outright.

JEFF SELINGO:

It has.

I think that's probably an impossible — a possible dream. And I also think that students and parents do have a role in paying for college. You know, states pay a little bit; the federal government pays a little bit; institutions pay. But I think that the student debt has been made a villain in the Occupy Wall Street movement. And at the end of the day, students and parents do have to pay a part of college tuition and many times they have to take out student loans to do that.

GWEN IFILL:

Anya Kamenetz, is this because students are borrowing more or is it because the prices are unsustainable in order to get this education?

ANYA KAMENETZ:

Well, I think both of those things are true.

You know, this announcement by the president doesn't do anything to impact the other announcement we heard today, that public college tuition rose 8 percent last year. That was led by a giant increase at the University of California system.

And if the underlying costs of college are not addressed, it doesn't matter how you finance it, how you pay for it. The burden is going to continue to grow. And I believe that students and families have really had enough. That's what this Occupy Wall Street movement is saying. It's saying that the cost of college is getting to a point where people are questioning that value. Even if economists tell you that it's a good idea to get a college education, it just doesn't seem to add up for a lot of graduates.

GWEN IFILL:

Now, it should be said, the president, Jeff Selingo, never mentioned Occupy Wall Street in his comments today, and this wasn't — in the White House's mind — at least, they didn't overtly say it was linked to that movement.

But I wonder whether there is a debate that can be had about what the federal government's role is in bringing down costs, rather than in forgiving debt, and whether that's where the attention should be paid.

JEFF SELINGO:

Well, I think there is a role for the federal government to figure out why colleges cost so much and why certain colleges cost a lot more than others.

We reported today that now about 133 colleges are over $50,000 in terms of tuition room, board and fees.

GWEN IFILL:

These are private and public.

JEFF SELINGO:

These are private colleges. I think there's one public college on the list. I think that's an issue.

And I think Anya brings up a good point. Economists do say going to college pays off over the long run. Having a college degree gives you about $500,000 more in your paycheck over the course of your lifetime compared to a high school diploma.

So going to college makes sense. The question is, does going to an expensive college make sense?

GWEN IFILL:

What do you say about that, Anya?

ANYA KAMENETZ:

Well, I think that the cost benefits have to take in the full landscape of colleges.

And what is expensive is really changing. Public tuition has — increases have outpaced private tuition increases for the past two years. And state budgets are really slashing higher education and shifting the cost on to students. And so even if these private schools — public schools look cheaper by comparison to the private schools, and especially the for-profits, but, you know, there are very few bargains left in the world of higher ed.

GWEN IFILL:

This plan today would consolidate federal loans, but it doesn't have any effect on these private loans that we're talking about, does it?

JEFF SELINGO:

No, it doesn't.

Private lending is still a big portion of what students get. Another piece that wasn't announced today, but the federal government, the Education Department is looking at, is to require colleges to be clearer about the financial aid letters they send to students and parents. Many of those letters are confusing. You're not quite sure exactly how much you're borrowing, how much money you're actually getting in grant aid.

And so there's now a movement through the new consumer bureau in the federal government to require colleges to be very clear with parents and students about what they're getting in terms of loans, what they're getting in terms of grants, which don't have to be paid back, which will allow parents and students to make comparisons between colleges, because it's not clear right now how much they're actually borrowing in some cases.

GWEN IFILL:

Are you saying — and I want Anya to respond to this as well — that if people had a better understanding of what they were getting into, they might make difference choices?

JEFF SELINGO:

I think so. I think there's very little information sometimes by students and parents about the cost of college.

Going to college is the American dream. And for some students and parents, going to a certain college is a dream. But I think that if students and parents had better information up front about what they're getting into and the overall cost of this college over the four years, plus after you get out of college, and really taking sense of what your job prospects are, I think that students and parents might make some different choices.

GWEN IFILL:

What do you think about that, Anya?

ANYA KAMENETZ:

An improvement in the financial aid letter is a start. And I certainly think there's an important role for education on finances, as Jeff mentions.

But you don't get that financial aid letter until you — after you apply and are accepted. So I think we really need to intercept families and parent — and students much earlier in the process, when they're thinking about what college to go to and lots of different ways to cut down their cost of attendance by perhaps starting at a community college, shortening their overall time to a degree. That's gotten longer and longer. That's a huge factor in what students are paying.

So it really goes beyond the issue of financial aid. And there's an overall comprehensive gap in information and education that students and families need.

GWEN IFILL:

Where does that interception happen?

ANYA KAMENETZ:

Well, I would say when people are in high school and first starting to think about the college application process, whether to take the SATs or ACTs. There's a very big shortage of guidance counselor time in public high schools. So a lot of people just don't have the information they need and they feel that college is out of reach because they don't know all the different ways they can pay for it or make it less expensive.

GWEN IFILL:

Is there any concern — and I don't know whether it would be even your concern — that banks and the private loan institutions who are involved in making a lot of this money are going to lose out because it's now being consolidated in these lower-interest programs?

JEFF SELINGO:

Well, they had already lost out. The government moved to a direct lending program last year under a law that President Obama signed. So many of the banks have already lost out on this program.

GWEN IFILL:

And is that the right…

ANYA KAMENETZ:

But it's…

GWEN IFILL:

Go ahead.

ANYA KAMENETZ:

Well, it's important to note as well, Gwen, though, that private student loans that are unsubsidized by the federal government, they are going three times faster than these federal student loans. And they're actually on track to surpass the volume of federal student loans by 2025.

So the banks are making good on their own brand of student loans, which are non-dischargeable in bankruptcy, and are a product that is far more expensive than the federally subsidized loans. And that's a really huge problem as well.